Avis Budget Group Inc【CAR】株式ニュース

Hurt by coronavirus, Hertz implements furloughs, takes other steps to control costs

Laura Layden
Fort Myers News-Press
March 26, 2020

Hertz is hurting.

Just as it appeared the Estero-based car rental giant had turned the corner on its ambitious turnaround plan, the coronavirus stopped the company in its tracks.

In a news release late Thursday, Hertz Global Holdings, parent of The Hertz Corp., announced it is "aggressively managing costs and substantially reducing capital expenditures."

Like many other companies in the tourism industry, Hertz Global said it has been hit hard by the "significant, adverse impact on travel demand from the coronavirus."

"Like the rest of the global travel sector, COVID-19's impact on Hertz arrived swiftly, and the reversal in customer demand has been significant," said Kathryn V. Marinello, the global company's president and CEO. "We are aggressively taking actions to sustain operations and preserve liquidity, while confronting the issues raised by some of the most difficult economic conditions we have experienced."

In January and February, Hertz experienced strong revenue and productivity, with global revenue increasing 6% on 8% higher U.S. car rental revenue, compared to the previous year.

Then came the coronavirus.

More: Hertz Global reports record revenue for Q4, but wider losses

In March, cities, counties and towns around the world rapidly began shutting down and airline travel dropped dramatically, fueling car rental cancellations and putting the brakes on new rental bookings.

As a result, Hertz Global said it "immediately began adjusting fleet levels in response to the reduced travel demand, working with its suppliers to "defer new fleet deliveries or modify previously placed orders."

The company said it has switched gears by prioritizing sales and marketing strategies to be more in line with the current economic environment.

Hertz has also consolidated local rental locations in the United States and Europe, offering customers alternative pick up points, as necessary.

'It's heartbreaking': Hotel operators grapple with financial losses during coronavirus pandemic

The company said it recently implemented employee furloughs, which have affected workers across its North American field operations and at U.S. corporate locations to "align staffing levels with the slowdown in demand."

Implementing furloughs, Hertz said, was "a very difficult decision and was not easily made, knowing that many good people would be affected."

Once travel rebounds globally, the company said it "hopes to bring back as many team members as possible."

In an email, a Hertz spokeswoman said the company isn't disclosing more specific details about the furloughs, such as the total number of employees impacted.

"We’re continuing to pay the full premium cost of employees’ health benefits throughout the duration of the furloughs," she said. "We’re also actively partnering with other companies that have open positions to match them with interested Hertz employees."

Bloomberg reported that Hertz started furloughs at midnight on March 21 based on an internal memo it obtained written by Paul Stone, the company's chief operations officer for North American operations, to his employees.

Hertz confirmed the authenticity of Stone’s memo, in which he wrote: “We haven’t experienced anything of this magnitude before, with such profound impact on our business. You are seeing firsthand as travel demand has dropped off dramatically.”

Along with the furloughs, senior leaders at Hertz are taking a "significant reduction in pay," with Marinello giving up 100% of her base salary.

According to a regulatory filing with the U.S. Securities and Exchange Commission, Marinello earned more than $8 million in total compensation in 2018. That included a base salary of $1.45 million, which remains the same under a new employment agreement she signed in November.

Her other compensation in 2018 included a more than $1.6 million bonus, along with stock and stock options tied to the company's financial performance.

Last year, Marinello earned a bonus of $1.35 million.

As for Hertz's financial health, the company said it has access to roughly $1 billion in "liquidity," with no significant corporate debt due until June 2021.

In February, Hertz increased its U.S. vehicle debt capacity by $750 million and the company "does not anticipate any vehicle debt financing requirements for its global car rental business for the remainder of the year."

Ultimately, the company stated its available liquidity will depend on the "duration and magnitude of the travel slowdown, as well as other factors, including trends in used-car values."

Along with other car rental companies, Hertz said it's working with governments in the U.S. and Europe to get financial help through this crisis.

"This situation is unprecedented," Marinello said. "Events are unfolding rapidly and the picture changes daily. But Hertz is a resilient company, with resilient brands and resilient people."

Earlier this week, Bloomberg reported that Hertz and its peers Avis and Enterprise Holdings have asked the U.S. Treasury Department to include them in an aid package for airlines and other businesses hard hit by a dramatic drop in travel across the globe.

According to Bloomberg, the car rental giants are "seeking grants to help address liquidity issues and for support from the Federal Reserve, among other measures."

In a statement Monday, Joe Ferraro, interim president and CEO of Avis, said, “Consistent with other integral components of the global travel industry, we are seeing significant impacts in our business around the world as a result of the coronavirus. Our team is united in facing the current unprecedented health crisis, and we are committed to taking the necessary steps to protect the health and safety of our customers, our employees, and to navigate through this disruptive global event.”

Like Hertz, Avis said it saw strong rental demand in January and February, but it fell off in March as travel restrictions became widespread.

In a business update, Avis said it's also taking "numerous steps to proactively manage declining reservations and revenue," from aggressively reducing vehicles to pairing back its staff.

Avis also plans to reduce pay for senior employees. Overall, the company said it's "targeting more than $400 million in annualized cost reduction and mitigation."

"These savings will serve us well even after the emergency passes," the company stated.

Meanwhile, with the aggressive actions Hertz Global is taking, Marinello said the company should be able to "navigate the current environment and emerge an even stronger business as world travel recovers."

"Our proactive position ensures we are here to support our customers now — providing critical transportation needs for government, healthcare, delivery and front-line relief workers — and over the long-term."

The Hertz Corp., a subsidiary of Hertz Global Holdings, operates the Hertz, Dollar and Thrifty rental brands in about 10,200 corporate and franchise locations throughout the country, as well as abroad from Europe to the Middle East to Australia. It's one of the world's largest vehicle rental companies and it sells its used vehicles through Hertz Car Sales.

In an email, Andrew Hill, of Andrew Hill Investment Advisors in Naples, said Hertz is "heavily leveraged with their capital structure consisting of 90% debt and 10% equity according to current market values sourced from Bloomberg."

On top of that, he said, Hertz earns a low return on its assets.

"Heavily indebted businesses are handicapped to invest for the future," Hill said. "Just like the COVID-19 is most deadly towards the weak, companies with highly leveraged capital structures are also at a greater risk to downturns that they may not survive financially."

As a Hertz customer and #1 club member, he said he hopes the company can "find opportunities in the current economic challenges to bridge until the travel business recovers."

Rental Car ABS Outlooks Revised to Negative On Coronavirus Impact

Tue 31 Mar, 2020

Fitch Ratings-New York-31 March 2020: Rental Car (RC) asset-backed securities (ABS) trust performance is facing heightened risks as the coronavirus hit the travel and RC industries head-on, and Fitch Ratings has revised its sector outlook to Negative from Stable. Despite mounting risks, Fitch's Rating Outlook remains Stable driven by current trust performance metrics, the ability of RC companies to manage their fleet and service ABS, and structural features in ABS transactions to protect noteholders.

RC companies are trying fast to address and enact funding and operational measures to weather the massive decline in leisure and business travel and huge hit to vehicle rentals. Amid major cities locking down citizens impacting travel and car rental demand, RC companies need to de-fleet to right-size their fleets and address funding needs, while anchoring their corporate credit profiles to withstand and survive through this crisis.

When de-fleeting, RC fleet values face asset risks from the potential hit to vehicle values across the wholesale used vehicle market, and need to manage this to avoid losses from non-program vehicle (NPV) dispositions and contain any potential jump in depreciation. RC companies are turning back auto manufacturer program vehicles (PV) to reduce fleets, and try to manage down upcoming original equipment manufacturer (OEM) deliveries, and this does offer them some form of downside support as OEMs take back vehicles as per agreed terms. Further, dislocation in the wholesale auction market and operational challenges will further complicate fleet management. These risks combined will pressure ABS asset performance and test fleet servicing capabilities.

Fitch currently rates 19 series totaling $10.7 billion in outstanding notes composed of nearly 70 note tranches issued from the Avis Budget Rental Car Funding (AESOP) LLC ($4.65 billion from eight series) serviced by Avis Budget Group, Inc. (Avis), and Hertz Vehicle Financing II LP (HVF II) ($6.04 billion from 11 series) serviced by The Hertz Corporation (Hertz). Fitch does not rate (NR) Avis or Hertz.

While we apply criteria rating 'through the cycle' and RC ABS transaction structures offer protections, the ongoing virus spread/scale and impact, and policy measures instituted are unprecedented and beyond prior travel industry and business cycle downturns. Although remote at this point, this action considers the potential negative impact on ABS trust performance metrics beyond Fitch's stressed levels and outside of our derived base case ABS series Expected Loss (EL) levels, including higher, faster depreciation and NPV disposition losses as servicers shrink their fleets down. Material auto wholesale market operational challenges will be challenging and complicate de-fleeting given closure and disruptions to disposition channels. Fitch has started to observe declines in wholesale auction activity and used values as of the end of March.

Further, as travel demand has collapsed along with rental volumes, RC company credit profiles are under pressure given massive declines in rental volumes, revenues and profits. Fitch does not publicly rate RCs, but view their operational capabilities and ability to pay-down and service ABS adequately, and manage through the market volatility over the next three to six months. Both Avis and Hertz do not appear to need further fleet vehicle financing for the rest of 2020 as they continue defleeting, and are actively accessing surplus equity in its car-rental fleets/facilities to provide incremental liquidity.

Importantly, Fitch's ABS criteria delinks the credit profile of the sponsors and assumes an immediate RC company bankruptcy and liquidation of the fleet over several months under stressed wholesale market conditions and values, which we discuss further below.

Structural Features Provide Protection to ABS

Trust performance metrics such as vehicle depreciation and disposition losses outside of our existing criteria assumptions are key risks Fitch is monitoring, although it will take a few months for the current environment to present itself in trust metrics. Supportive trust features to address these risks include monthly vehicle mark-to-market (MTM) and disposition proceeds tests, where to date both AESOP and HVF II trusts have not breached in recent years. Further, minimum depreciation rates applied to each trust ensure further minimum marks to ongoing vehicle depreciation, and for AESOP and HVF II the minimum is around 1.65%. MTM tests verify that the book value of the vehicles in the RC fleet do not exceed the current market value of the vehicles in the secondary market, and disposition proceeds tests are in place to compare vehicle sales proceeds to market values.

On a three-month average basis, both issuers have maintained these trust marks and parameters for MTM/disposition tests in excess of 100% in recent years. If these tests see sustained results below 100% for three or more months wherein either the book value of the vehicle exceeds the market values, or market value of vehicles exceed sales proceeds, both trusts are required to add additional enhancement to support the outstanding notes. In addition to these performance tests, each transaction can benefit from available liquidity facilities, often in the form of letters of credit, which support at least six months of interest payments on the notes if needed.

Trust concentration limits in place aim to diversify RC fleets by vehicle make/brand and type (trucks/SUVs/cars etc.). Further, trust OEM limits in place, by investment grade (IG) versus non-IG brand vehicles, link vehicle compositions to the ultimate strength of OEMs. However, Fitch does not link such concentration features to our EL analysis, and at the highest derived EL assumes a worst case fleet for a trust.

Fitch's base case coronavirus scenario assumes a sharp contraction through mid-year, then stabilization in 3Q20 and a recovery in 4Q20 into 2021. Further, the wholesale vehicle market is starting to come under pressure along with used values; this disposition channel is relied on heavily by RC companies. In coming months, this will pressure efficiencies across RC companies' fleet management disposition channels, either for wholesale auction sales or their own retail sales networks. However, the massive OEM production pull-back in the U.S. may provide support as supply falls and could then support used prices, but this risk remains uncertain as this pandemic moves through the country.

The features described above are in place to support the outstanding trust issuances through times of economic downturn, and the ABS risks mentioned prior in Fitch's base case scenario.

In mid-March, CEOs of Avis, Hertz and Enterprise Holdings Inc. sent a joint letter to the U.S. government requesting that the industry be included in any economic stimulus package assembled by the government. The companies are seeking tax deferments as well as reduced revenue-sharing with airports. While Fitch acknowledges that government support and/or consolidation initiatives may provide support to RC companies, the form of support and details are unclear at this point and the agency will consider implications as more information becomes available.

Debt Maturities Coming Due in 2020

Avis has two ABS series maturities in 2020, including 2015-1 ($433.33 million paying down now in the controlled amortization period, and expected to be paid off in July) and 2015-2 ($500 million to be paid down in December) totaling $983.33 million, and just closed a $700.0 million ABS deal in January of this year. Hertz just paid down the $780.0 million 2015-1 series (not rated by Fitch) on March 25, and has two further ABS maturities this year totaling $850.0 million, namely 2015-3 ($371.2 million maturing in September) and 2017-1 ($478.8 million maturing in October), and as they de-fleet that cash can be utilized to pay down debt.

When vehicles are financed in securitizations, these vehicles are added at a certain advance rate and then depreciated at minimum levels that are higher than GAAP-reported depreciation. When these vehicles are subsequently sold and removed from the fleet, this frees up cash that is locked up in the ABS trust, bolstering liquidity to potentially pay down outstanding debt.

RC companies must manage ongoing OEM PV deliveries, but as the need for re-fleeting has diminished now, they may look to renegotiate these, defer or even cancel them under agreement terms, if possible. This will help free up liquidity, particularly for debt maturities coming due in the near term.

RC company operational abilities to service ABS are solid and both companies managed through the 2008-2009 Great Recession, experience they can now leverage. They have either closed or reduced operations and working hours at rental lots to contain costs, both for on-an-off airport locations, overall cutting costs in various ways.

Fitch ABS Expected Loss Levels Derived In a Severe Liquidation Scenario
Importantly, Fitch's analysis of RC ABS immediately assumes a Chapter 7 Bankruptcy of the RC company/servicer, and then a complete fleet liquidation over a period of time utilizing stresses based on prior recessionary depreciation, disposition losses and casualty losses. The derived base case EL from liquidation of such revolving pools is evaluated at the best and worst case fleet concentrations based on trust concentration limits. The best case fleets are primarily composed of PV from IG OEMs, with the worst case fleets made up of primarily NPV from non-IG manufacturers. Credit enhancement available covers such Fitch EL levels, and are adequate to cover any short-term asset disposition losses or elevated depreciation where this to occur over the short term.

Fitch's 'AAAsf' EL levels for the worst and best fleet mixes for AESOP is 33.2%-16.0% for the most recent 2020-1 series, and 35.1%-20.1% for HVF II series 2019-3. Therefore, it would take depreciation levels outside of our assumed rate of 1.45%/1.50% for AESOP PV and NPV, respectively and 1.45%/2.05% for HVF II PV and NPV, respectively and disposition losses outside of our criteria driven/recessionary based levels of 24% for 'AAAsf', to impact current total ELs for each trust. Given current trust levels for these metrics, with effective economic depreciation and disposition losses below these levels, Fitch's derived EL is not currently in play and performance would need to materially decline to test these loss levels in the next three to six months.

Further, fleet liquidation agents and backup servicer/administrative agents in place provide operational support to ABS transactions to locate and execute servicing/administrative roles, in the event of a RC company bankruptcy and liquidation of the fleet.

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